Nanjing Xinjiekou Department Store Co., Ltd. (SHSE:600682) shares have had a horrible month, losing 27% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 32% in that time.
Even after such a large drop in price, Nanjing Xinjiekou Department Store's price-to-earnings (or "P/E") ratio of 19.8x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 55x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
While the market has experienced earnings growth lately, Nanjing Xinjiekou Department Store's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Is There Any Growth For Nanjing Xinjiekou Department Store?
There's an inherent assumption that a company should underperform the market for P/E ratios like Nanjing Xinjiekou Department Store's to be considered reasonable.
Retrospectively, the last year delivered a frustrating 44% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 54% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 56% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 38% growth forecast for the broader market.
With this information, we find it odd that Nanjing Xinjiekou Department Store is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Bottom Line On Nanjing Xinjiekou Department Store's P/E
Nanjing Xinjiekou Department Store's P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Our examination of Nanjing Xinjiekou Department Store's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Nanjing Xinjiekou Department Store you should know about.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.